Chinese demand for commodities ‘still strong’, says Standard Bank

CHINA’S economy might be slowing, but its demand for Africa’s commodities will continue, offering significant opportunities to banks operating on the continent.

The best prospects are in providing financial services to facilitate development in oil and gas, mining, and power and infrastructure, according to Standard Bank corporate and investment banking CEO David Munro.

Though some economists have warned that a slowdown in China’s economy and the subsequent reduction in its demand for commodities could hit resource-rich Africa hard, Mr Munro disagrees.

"You are talking about the second-biggest economy in the world going from a 10% growth rate to a 7% growth rate. It is still growing at an unbelievable rate," he said on Monday.

China was Africa’s seventh-largest single trade partner in 2001. Last year, it took the number-one spot with total trade with Africa of $169bn.

Since the financial crisis in 2008, Standard Bank has changed its strategy of looking to emerging markets for growth to focusing solely on Africa.

The corporate and investment banking unit now earns about a third of its revenue from its operations in the rest of Africa. Its revenue for the first half of 2013 was R14bn.

This change in strategy should cushion the bank if the US government defaults on its debt and sends the global economy into free fall, said Mr Munro.

He said African frontier and pre-frontier markets respond slower to global financial shocks than emerging markets.

"We have placed our whole strategy where we think we can be competitive in a future world, in a part of the world that is growing and probably more capable of dealing with worldwide financial shocks," he said.

Mr Munro said financial services can play a role in unlocking the continent’s potential, particularly through facilitating the flow of capital through trade, local and foreign direct investment and portfolio capital.

Foreign direct investment (FDI) flows into Africa increased by 5% to $50bn last year while globally FDI fell 18%.

Portfolio inflows have also increased into Africa, particularly Nigeria, as local debt and capital markets have matured.

Mr Munro said African Eurobond issuances were an important source of capital inflows into Africa having grown from less than $1bn in 2005 to more than $20bn.

In this article

CHINA’S economy might be slowing, but its demand for Africa’s commodities will continue, offering significant opportunities to banks operating on the continent.

The best prospects are in providing financial services to facilitate development in oil and gas, mining, and power and infrastructure, according to Standard Bank corporate and investment banking CEO David Munro.

Though some economists have warned that a slowdown in China’s economy and the subsequent reduction in its demand for commodities could hit resource-rich Africa hard, Mr Munro disagrees.

"You are talking about the second-biggest economy in the world going from a 10% growth rate to a 7% growth rate. It is still growing at an unbelievable rate," he said on Monday.

China was Africa’s seventh-largest single trade partner in 2001. Last year, it took the number-one spot with total trade with Africa of $169bn.

Since the financial crisis in 2008, Standard Bank has changed its strategy of looking to emerging markets for growth to focusing solely on Africa.

The corporate and investment banking unit now earns about a third of its revenue from its operations in the rest of Africa. Its revenue for the first half of 2013 was R14bn.

This change in strategy should cushion the bank if the US government defaults on its debt and sends the global economy into free fall, said Mr Munro.

He said African frontier and pre-frontier markets respond slower to global financial shocks than emerging markets.

"We have placed our whole strategy where we think we can be competitive in a future world, in a part of the world that is growing and probably more capable of dealing with worldwide financial shocks," he said.

Mr Munro said financial services can play a role in unlocking the continent’s potential, particularly through facilitating the flow of capital through trade, local and foreign direct investment and portfolio capital.

Foreign direct investment (FDI) flows into Africa increased by 5% to $50bn last year while globally FDI fell 18%.

Portfolio inflows have also increased into Africa, particularly Nigeria, as local debt and capital markets have matured.

Mr Munro said African Eurobond issuances were an important source of capital inflows into Africa having grown from less than $1bn in 2005 to more than $20bn.

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